Short interest and borrow fee rate update: Mostly quiet on the Western Front (InsurTechs excluded)
FINRA released its latest short interest report, which includes data through October 31, on Tuesday.
Root’s short interest as a percent of float jumped 6.9pts over the two-week period, and HCI and Greenlight Re’s short interest as a percent of float fell 7.1pts and 1.1pts, respectively. All other stocks covered remained within 1pt of their short interest levels last reporting period.
Lemonade and Root remain the two highest shorted insurance stocks, with short interest of 36.2% and 35.9% of float shorted, respectively. This reporting period's short interest in both companies is more than double that of any other company covered. Root has significant private equity and insider ownership, limiting the public float compared to industry peers, which skews Root's short interest metric higher than it otherwise would have been. Metromile and HCI rank a more distant third and fourth with 16% and 6.9% float shorted, respectively.
When shorting a stock, traders typically borrow shares of that stock from a brokerage to short sell on the open market, to later repurchase the cheaper stock after the price falls and return it to the brokerage. This process involves a stock loan fee charged per share and is usually 0.3% of the stock price, annualized. For stocks that have more short interest from investors, the stock loan fee can be higher.
The chart below details the stock loan fee rates for InsurTech firms and shows that short sellers are willing to pay a higher initial borrowing fee to short InsurTechs. The recent bump in Metromile’s borrow fee rate might indicative short interest attention in the stock after Lemonade’s acquisition of the firm was announced on November 8. Hippo’s rate has declined from close to 4% in mid-October to close to 2% in early November brings the firm’s fee rates in line with other InsurTechs’ rates.
InsurTechs, including Hippo, Metromile, Root, and Lemonade, continued their stock price slide over the last two weeks. For example, Root’s stock fell 8.7%, while Lemonade and Metromile’s stock prices fell 5% and 4.7%, respectively. These drops aligned with minor changes in short interest during the period but did not manage to shake short interest from InsurTechs.
Roughly half of the firms covered notched stock-price gains during the two-week reporting period, while the other half saw their stock prices fall. Kinsale Capital’s stock price increased 13.2%, the fastest rate of growth for covered firms.
James River’s stock experienced the worst contraction, dropping 17.9%, expecting the firm to miss on revenue estimates in the third quarter.
Most firms saw their days-to-cover fall, indicating that their stock volumes were up compared to the prior reporting period. One significant exception, State Auto Financial Corp, saw their days-to-cover jump from 5.5 to 1.5 days, a 5-day rise.
Looking ahead, we anticipate third-quarter earnings will begin to affect trailing short-interest activity more directly as companies report their performances to investors.